Retreat from oil lifts stocks

The 6-year-old bull market in oil and other commodities has a serious limp.

Oil futures slid again Tuesday, dropping $2.54 to $122.19 a barrel, the lowest closing price since May 6. That’s down more than $23 from crude’s record close July 3.

But it’s not just oil.

Almost anywhere you look in the commodity markets -- including corn, soybeans, wheat, nickel, copper and gold -- prices are well off their recent peaks. The Reuters/Jefferies CRB index of 19 major commodities, which fell Tuesday for the 10th time in 12 sessions, has fallen 13% since reaching a record high July 2, though it’s still up 28% in the last year.

For consumers, this reversal of fortune in the prices of hard assets is good news, of course.

That, along with some better-than-expected corporate earnings and an uptick in a major consumer confidence index, helped push stocks up sharply Tuesday, more than recouping Monday’s steep losses. The Dow Jones industrials gained 266.48 points, or 2.4%, to 11,397.56, after tumbling 239 points Monday.

But the retreat in commodities is coming too soon for investors who only recently jumped on that bandwagon. The share price of the Pimco Commodity Real Return mutual fund, popular with many individual investors who want to bet on raw materials, is off about 16% in fewer than four weeks. The Standard & Poor’s 500 stock index, by contrast, is up slightly in that period.

Many traders say commodity prices are just taking a cue from signs of slowing economic growth worldwide, figuring that can’t be bullish for raw-material demand.

With gasoline, in particular, “the evidence is there, certainly in the U.S., that people are cutting back,� said Ron Goodis, head of futures trading at Equidex Brokerage Group in Closter, N.J.

But there also has been talk that some institutional investors have been pulling back from commodity funds this month, wary of Congress’ efforts to paint them as villains that have helped to stoke the surge in prices over the last few years, said William O’Neill, a veteran commodity trader at Logic Advisors in Upper Saddle River, N.J.

Or maybe the big-money players concluded that too many investors had blithely hopped aboard the rally in tangible things.

Making money on commodities had become “too easy,� Goodis said. “It was the ‘in the know’ trade.�

For Wall Street the pullback in oil, and yet another burst of buying in depressed financial stocks, powered a broad advance Tuesday as the market’s manic mood swings continued.

The Standard & Poor’s 500 index rose 28.83 points, or 2.3%, to 1,263.20, and the Nasdaq composite index rose 55.40, or 2.4%, to 2,319.62.

The Russell 2,000 index of smaller companies rose 18.44 points, or 2.7%, to 714.55. Advancing issues outnumbered decliners by more than 3 to 1 on the New York Stock Exchange.

An index of financial stocks in the S&P; 500 soared 7.5%, its first advance in four sessions.

Merrill Lynch shares fell initially on its plans to take another multibillion-dollar write-down and sell $8.5 billion in new stock, but rallied to finish the session up $1.92, or 8%, at $26.25.

Citigroup gained $1.03, or 5.9%, to $18.46. Washington Mutual jumped 46 cents, or 12%, to $4.40. Bank of America surged $3.97, or 14%, to $32.03 and Wachovia rose $1.98, or 15%, to $15.61.

Among Southland issues, Downey Financial surged 47 cents, or 27%, to $2.20.

Among other market highlights:

* The latest slide in oil helped push up airline stocks. American Airlines parent AMR surged $1.47, or 18%, to $9.47. Delta Air Lines shot up $1.01, or 15%, to $7.91. United parent UAL soared $1.50, or 21%, to $8.51.

* U.S. Steel jumped $20.43, or 14%, to $165.76. The steelmaker’s profit more than doubled in the second quarter thanks to an increase in demand and higher prices.

* Colgate-Palmolive rose $5.59, or 8.2%, to $74.15 after reporting that its second-quarter earnings climbed 19%. Price increases helped the consumer product company offset rising costs.

* Yields on government bonds rose Tuesday along with stocks. The benchmark 10-year Treasury note climbed to 4.04% from 4% late Monday. The dollar was mostly higher against other major currencies.

* The Dow and the S&P; are now less than 20% below their Oct. 9 record peaks. The Nasdaq is less than 19% below its Oct. 31 peak.

* Overseas, key stock indexes rose 0.1% in Britain and 0.8% in Germany. Shares fell 1.5% in Japan and 0.1% in France.

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The Associated Press was used in compiling this report.